Consider an Economy Starting from a Position of Full Employment

question 60

Multiple Choice

Consider an economy starting from a position of full employment.Which one of the following changes does not occur as a result of a decrease in aggregate demand?

• A)A recessionary gap arises.
• B)Factor prices decrease in the long run, shifting the short- run aggregate supply curve rightward.
• C)The level of real GDP decreases in the short run.
• D)The long- run aggregate supply curve shifts leftward to create the new long- run equilibrium.
• E)The price level decreases.

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Definitions:

Overall Set

The complete or total collection of elements, items, or objects under consideration.

Anchoring

The tendency people have to unconsciously base, or “anchor,” the valuation of an item they are currently thinking about on recently considered but logically irrelevant information.

Irrelevant Information

Information that has no bearing on the decisions being made, providing no value to the decision-making process.

Anchoring

A cognitive bias that describes the human tendency to rely too heavily on the first piece of information offered when making decisions.